Solution/Answer
Executive Summary
In this integrative report of Corporate Award Program, a formal commercial negotiation has been established for XXX organisation in Oman oil and gas sector. This is by highlighting key facts, data and approaches applicable in the negotiation process. The category of spend selected is the rubber linings service with distinct tools, techniques, theories and concepts being used for evaluating and proposing an appropriate negotiation plan. The rationale of selecting rubber linings are critical for protection against corrosion, erosion damage for maintaining internal service of internal surfaces. Also, in the current COVID-19 pandemic, owing to the reduced business activities and demand for oil and gas products, mall machines operations have substantially reduced. Hence, the demand for rubber linings in XXX organisation has significantly increased. For success in negotiation, XXX engage professionals, appropriate terms and conditions, detailed preparations and streamlining their procurement and supply chain management strategy. Appropriate forecasting and planning to consume and guarantee provision of products for meeting the clients needs.
From this report analysis, the findings indicate that XXX adopt sever phases of negotiations in line with CIPS guidelines. These are preparation, opening, testing, proposing, bargaining, agreement and closure. Similarly, from the analysis of martket environment using STEEPLE, Porter’s 5 forces and SWOT analysis, there are strengths and areas of leverage for achieving successful negotiation strategies. For stakeholders analysis and supplier preferencing matrix findings indicate the necessity for promoting negotiation strategies. Further, in line with the roles and benefits of P&SM, 5 Rights of Procurement and 3P’s triple bottom line, relevance of acquisition of appropriate skills and competencies such as communication, engagement, teamwork, accountable and managing all conflicts is instrumental. These practices harness success of the negotiation framework and mitigating possible bottlenecks often achieved through an embrace of BATNA technique.
Finally, in line with the obtained findings, the possible recommendations include;
- To restructure the XXX negotiation approach with classification of buyers functions for solving evident roles duplication and improving the procurement cycle
- Implement a successful outsourcing strategy to ensure an increase in value addition for products and costs savings
- Develop accurate and appropriate specifications to be included for entire stakeholders of XXX organisation contract development. This is critical to promote success of their procurement process
- Promoting suppliers selection strategy through an evaluation of SWOT profile for considering financial viability, supply risks evaluation and leverage on competitive advantages
Table of Contents
1.2 Background of XXX P&SM.. 7
1.3 XXX Categories of Spend. 8
1.3.1 Category of Spend Selected. 9
2.0 Evaluation of XXX Procurement Process. 10
2.1 RACI Stakeholders Model in XXX Procurement Cycle. 12
3.0 Negotiation Plan for XXX Rubber linings services spend category. 17
3.1.1 Strengths Weaknesses Opportunities Threats (SWOT) Analysis. 19
3.1.3 BATNA in Negotiation Preparations. 21
3.1.4 Possible Negotiation Strategies. 22
3.4.1 Application of the 4R’s Model 26
5.0 Conclusions and Recommendations. 29
Appendix 1: XXX Procurement Terms and Conditions. 35
Appendix 2: Creating the Right Environment 40
Appendix 3: Kraljic Analysis Matrix. 40
Appendix 4: Procurement Strategy Steps. 41
Figure 1: Negotiation in procurement 6
Figure 2: XXX P&SM Structure. 8
Figure 3: XXX Categories of Spend Summary. 9
Figure 4: Procurement and Supply Cycle. 11
Figure 6: Stakeholder Types. 15
Figure 7: Mendelow Analysis in XXX Rubber linings services spend category. 16
Figure 8: Different Stages of Negotiation. 18
Figure 9: Summary of different negotiation phases. 18
Figure 10: SWOT Analysis for XXX Organisation. 20
Figure 11: XXX Rubber Linings services BATNA Category. 22
Figure 12: Possible Negotiation Approaches in XXX Rubber Linings services. 23
Figure 13: 5 Rights of Procurement 25
Figure 14: 4R’s Model in XXX Rubber Linings Services category Procurement 27
Figure 15: Supplier Preferencing Matrix. 28
Table 1:Runner lining services spend area sub-categories. 9
1.0 Introduction
In the modern highly competitive business environment, commercial contracts success rates are low. This is owing to increased flaws in areas of stakeholder management, pricing issues, delivery, quality and amendments/variations. As evidenced in CIPS (2021), success in negotiation is anchored on effectiveness in communication, stakeholders relations who include buyers, negotiators and advisors. An organisation ought to highlight all the stakeholders, issues of concern and defining variables. Further, as noted in CIPS (2020) the negotiation primarily involve an in-depth communication amongst the parties with the core objective and desired result being to achieve a mutual agreement. As shown in figure 1, for success in negotiation process, different aspects are put into account. These are managing costs, quality, conflicts management and address of arising issues. Further, for a successful negotiation strategy, it is defined with various parties satisfaction and improved performance to meet the set KPIs and SLA’s.
Figure 1: Negotiation in procurement
Source: CIPS (2020a)
1.1 Scope of Report
In this report, it include provision of a background which is applicable as a formal commercial negotiation plan for XXX organisation. The report analysis and selected approach are anchored on key facts, approaches and organisation data. A set of elements are important for evaluation inclusive of quality, terms and conditions (see appendix 1), delivery schedule, active communication and stakeholder relationship. To achieve this report scope, various tools and models including 5 Rights of procurement, Mendelow’s matrix, Kraljic matrix, 3P’s triple Bottom Line, BATNA and MIL have been applied. This is on top of the Supply & Demand Curve, STEEPLE, SWOT and Porter’s analysis for assessing market environment. At the end, appropriate recommendations have been established for harnessing the negotiation strategy.
1.2 Background of XXX P&SM
XXX is a leading organisation in exploration and production of oil and gas in Oman. The core business strategy of the organisation is delivery of most of Oman crude oil production and natural oil gas supply. The rationale of this is harnessing successful delivery, growth strategies and sustainable value creation in the entire industry and beyond the industry. The ownership of the organisation is categorised into the Government of Oman (60%), Royal Dutch Shell (34%), Total (4%) and PTTEP (2%). Further, the scope of operation of the organisation is approximately 90,000 km2 with approximately 250 production oil fields, 55 production gas fields, 8,000 active wells. Through a strategic inclusion and diversity, the organisation engages approximately 8,500 employees from 70 different nationalities with more than 70,000 direct and indirect suppliers. For coordination of their practices and optimum business practice, they integrate success and uniqueness in sourcing and procurement department. As evidenced in Dai- Global (2020) the organisation operations in procurement, sourcing and recruitment is through In-Country Value (ICV) approach. Through the adoption of this strategy, an organisation is able to maximise its procurement of the local goods and services hence improving the overall capacity and capability of local Omani citizens and organisations for sustainable commercial benefit of Omani Sultanate.
The XXX procurement department is structured into three distinct levels (see figure 2). These are the organisation procurement and supply management (P&SM) at the top of the structure, all affiliates and tendering portal, services, indirect products procurement and direct products procurement in their third levels. The identified levels operate in a collaborative manner for ensuring success in procurement process which is similarly informed by XXX terms and conditions (see appendix 1). The core values of the XXX P&SM include competencies of the employees in tendering, stakeholders management and technology use. This has particularly been significant in the current COVID-19 where the dynamics of procurement and supply have significantly changed.
1.3 XXX Categories of Spend
XXX spend categories are categorised into three main areas. As shown in figure 3 summary, the various categories are grouped into the direct materials, indirect materials and services. Direct materials represent the organisation daily activities such as employees facilitation, COVID-19 safety measures, safety equipment and packaging materials. Conversely, indirect materials are the spare parts, fuel and services maintenance. Importantly, all these spend categories are impacted by various issues such as stakeholders relationships, policies and procedures, evident risks and incurred obstacles with the quality and efficiencies in products and services delivery for meeting the end-user’s preferences put into account.
Figure 3: XXX Categories of Spend Summary
1.3.1 Category of Spend Selected
As shown in figure 3, the different categories of spend selected influence on driving value of the entire procurement and supply management process. As noted in Lorentz et al. (2021), differentiating various categories facilitate narrowing down of the focus and to ensure all the categories have their prominence. My placement in XXX organisation include working in collaboration with the P&SM in facilitating sourcing and delivery of Rubber linings services. This is one of the dedicated design engineering practices in XXX identified as “Shell DEP 30.48.60.10-Gen”. This category of spend is critical since in 2020, XXX spent approximately $5 million in procurement of the rubber lining service. An evaluation of the XXX categories of spend is as evidenced in table 1 which include the subcategories of Runner lining services. This evidence on their significance and necessity for putting in place sufficient policies.
Table 1:Runner lining services spend area sub-categories
| XXX Category of spend | Sources | Example of the subcategories |
| Diagnostic technology | Local and international suppliers | Augmented reality, blockchain, quantum computing |
| S-O-S Fluid analysis | Local and international suppliers | In-house analysis, dealer sampling services, component wear tables |
| Field service | Local and international suppliers | Installation, maintenance, repair or hardware installation |
| Condition monitoring | Local and international suppliers | Vibration analysis and diagnostics, lubricant analysis, acoustic emission and infrared thermology |
| Machine inspection data | Local and international suppliers | Corrective, risk-based, preventive and condition-based maintenance |
2.0 Evaluation of XXX Procurement Process
A successful procurement strategy entail different phases which are set for guaranteeing quality and timely provision of the products and services in line with buyer specifications. As evidenced in CIPS (2021a) the procurement cycle is used in describing the different stages and evidencing a step-wise practice which influence efficiencies of the process. A core factor is embracing competencies in different areas by procurement tam and ensuring achievement of organisation objectives. The procurement cycle in figure 4 represent the best practice. For the initial phase for example, this ins definition of the organisational requirements and develop specifications. In this phase, the organisation ought to note on the needs and opportunities. This is identified in CIPS (2021b) identify the initial stage as being cross-functional stakeholders evaluation and to develop an in-depth and increased specifications levels. Part of this include an engagement of the various stakeholders at an early phase for aversion of any likely delay and bottleneck.
In development of specifications, the key consideration issues include checking for counterfeit skills and people, identification of quality demands, sustainability, effective stakeholder involvement, innovativeness and IT use.
Figure 4: Procurement and Supply Cycle
Source: CIPS (2021b
XXX refers to most of the factors in figure 4 as procurement and supply cycle. The different stages used by XXX promote the P&SM practices to define the overall business needs, market analysis, appropriate plan and strategy, documenting, tender issuance, improved performance and logistics. In XXX, for the core aspects in the procurement strategy represent their stakeholder input. This is implemented in their Runner lining services category of spend. In this case, CIPS (2019) evidence that the best practice include identifying the stakeholder type which is critical to position organisation negotiation processes and promoting the P&SM efficiencies. Additionally, for achieving a successful stakeholder analysis, an organisation active engagement with the appropriate people and enhancement of a sourcing plan.
2.1 RACI Stakeholders Model in XXX Procurement Cycle
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